Doctoral Degrees (Economics)

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Browsing Doctoral Degrees (Economics) by browse.metadata.advisor "Du Plessis, Stan, 1972-"

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    Balance sheet policies and financial stability : central banking reimagined
    (Stellenbosch : Stellenbosch University, 2016-12) Van Lill, Dawid Johannes; Du Plessis, Stan, 1972-; Reid, Monique B.; Liu, Guangling; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Economics.
    ENGLISH SUMMARY : Balance sheet policies have become the primary policy lever of several central banks in the wake of the international financial crisis. However, with inflated central bank balance sheets, and global economic conditions returning to normal, the future of balance sheet policies needs to be considered. In this thesis I aimed to define a role for balance sheet policies in the monetary policy toolkit, especially with regard to financial stability. First, I developed an explicit definition of balance sheet policies and their channels of transmission to help resolve the confusion clearly visible in the academic literature and popular media. Second, I explored the changing nature of central bank operational frameworks, which identifies several new regimes. Third, I developed a dynamic general equilibrium model that implements supply-side financial frictions and the salient features of balance sheet policies. My first empirical chapter employed a time-varying parameter vector autoregressive (TVPVAR) model to establish the nature of the relationship between central bank liabilities and the overnight policy rate. Four countries with different monetary policy regimes were considered. It was found that a clear negative relationship between these variables exists only in the case of one regime, namely the reserve regime. This result indicates that the introduction of new operational frameworks for central banks have challenged the traditional model of monetary policy implementation. The practical implication of the decoupling of interest rates from reserves is that central bank balance sheets potentially can be used alongside conventional interest rate policy. In the last two chapters of the thesis a dynamic general equilibrium model was developed, equipped with a heterogeneous banking sector, endogenous default and collateralised lending on the part of the central bank. Within this framework, changes along the dimensions of size and composition of the central bank’s balance sheet were integrated. Increasing the size in this model significantly contributed to financial stability. However, when used in conjunction with interest rate policy, it could cause conflicting effects. Changes in its composition establish local supply effects, which means that long-term interest rates are depressed, an explicit goal of many asset purchase programmes. Changing the composition has an impact beyond that for the change in size, relaxing borrowing conditions even more than a pure injection of liquidity.
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    Essays on fiscal policy in South Africa
    (Stellenbosch : Stellenbosch Universit, 2020-03) Kemp, Johannes Hermanus; Du Plessis, Stan, 1972-; Siebrits, F. K. (F. Krige); Liu, Guangling; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Economics.
    ENGLISH ABSTRACT : This study is primarily motivated by the renewed interest in the effects of fiscal policy on general macroeconomic outcomes and macroeconomic stability since the 2008/09 Global Financial Crisis. In the wake of the crisis, it became apparent that both the standard and unconventional monetary policy toolkits were insufficient to stimulate global demand to the degree required. As such, there was renewed debate on the role of discretionary fiscal policy in stabilising the global economy. In light of the resurgence in interest on the effects of fiscal policy on broader macroeconomic outcomes, as well as the relative dearth of research on the topic in South Africa, this study investigates several aspects of the economy-wide transmission of fiscal policy decisions within the South African context. Chapter 2 provides microeconomic evidence of the behavioural responses of individual taxpayers to changing tax rates. The magnitude of this behavioural response is central to the formulation of tax and transfer policies. Using a new dataset comprising confidential tax return data, the elasticity of taxable income (ETI) is estimated. The estimate lies close to the mid-point of estimates found in the literature. Furthermore, it is shown that behavioural responses to changing tax rates are concentrated in higher-income groups. Finally, through embedding the ETI estimate in an optimal tax framework it is shown that there is little scope for raising marginal rates. Chapter 3 broadens the scope and investigates the transmission of unanticipated fiscal policy innovations to broader macroeconomic aggregates, including GDP and private consumption. A key aim of the chapter is to estimate fiscal multipliers. Using a variety of identification approaches and model specifications, it is found that, while the size of budgetary multipliers is sensitive to the identification strategy and modelling approach used, government spending multipliers are positive and smaller than one. Tax multipliers are found to be large and distortionary. Chapter 3 estimates fiscal multipliers based on empirical reduced-form models. A different approach to the identification of fiscal shocks and their transmission to macroeconomic outcomes is through estimated dynamic stochastic general equilibrium (DSGE) models. To that end, Chapter 4 specifies and estimates an open-economy fiscal DSGE model for the South African economy. While fiscal multipliers are generally in line with estimates from Chapter 3, the size of budgetary multipliers depends crucially on the specific policy rule that is used to stabilise debt, i.e. the functional form of the fiscal rules. The specific features embedded in the model, including the specification of nominal rigidities and consumer behaviour, also play a vital role in determining the size of the fiscal multipliers.
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    A microeconomic model of banking with a strategically determined interbank market
    (Stellenbosch : Stellenbosch University, 2020-03) Du Rand, Gideon Petrus; Georg, Co-Pierre; Du Plessis, Stan, 1972-; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Economics.
    ENGLISH ABSTRACT : This dissertation generalizes the seminal model of financial contagion by Allen and Gale (2000) to allow an aggregate liquidity demand shock to occur with positive probability. A shock with positive probability can affect the ex ante portfolio choices of banks as well as the welfare of consumers. I numerically characterize the symmetric Nash equilibrium of the non-cooperative game between two representative regional banks. The solution fully characterizes banks’ exante optimal choices. I obtain the following results: (i) when the probability of the shock approaches zero, the allocation of Allen andGale (2000) is obtained; (ii) in general, the equilibrium has three distinct characterizations, depending on the parameters: a no-default equilibrium, where no bank defaults; a single-default equilibrium where only the shocked bank defaults; and amutual-default equilibrium, where the shock leads to contagion. When banks are able to internalize the ex-ante threat of a shock, contagion is rare: it is possible in, at most, 4% of the parameter space, and only for small shock probabilities. Additionally, optimal risk-sharing is studied analytically in two novel aggregate benchmarks: a global bank with full information and a global bank with asymmetric information. A global bank with full information can observe consumer types. The allocation of a global bank with full information involves default after a large but sufficiently unlikely aggregate liquidity demand shock. Where default is not optimal, the allocation involves (i) holding excess liquidity when the shock is relatively likely, (ii) partial liquidation of the investment after a small and unlikely shock, and (iii) both excess liquidity and partial liquidation for shocks of intermediate size and probability. Under asymmetric information, a global bank cannot observe consumer types, and can offer less liquidity insurance than under full information. Finally, when the numerically approximated Nash equilibrium is characterized by either no default or contagion, the decentralized solution attains thewelfare of the benchmarks within numerical precision. However, when the Nash equilibrium is characterized by single default, the decentralized equilibrium is superior to the aggregate benchmarks. Thus, a global bank with regional branches can be inefficient for certain parameters in this model, relative to independent regional banks.
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    Second-round effects on inflation, and underlying inflation
    (Stellenbosch : Stellenbosch University, 2016-12) Ruch, Franz Ulrich; Du Plessis, Stan, 1972-; Reid, Monique Brigitte; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Economics.; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Economics.
    ENGLISH SUMMARY : Supply shocks, especially food and energy price shocks, play a significant role in the evolution and dynamics of headline consumer price inflation in South Africa. Although headline inflation is the price index officially targeted by the South African Reserve Bank, monetary policy can neither control the relative price movements, nor would it be desirable for the central bank to do so. It is only when these relative price shocks affect the underlying trend rate of inflation – core inflation – through second-round effects that monetary policy has a critical role to play. The presence of second-round effects change how a central bank needs to respond to relative price shocks. Generally, a central bank can look through shocks to food and energy prices, in the absence of second-round effects, communicating clearly the reason for its inaction. However, when second-round effects are present, the central bank has to respond appropriately to ensure that inflation expectations remain anchored around the target. Second-round effects emanate from the ability of price-setting firms and wage-setting labour to increase prices (whether through mark-ups or higher marginal costs) and wages, and therefore general prices of goods and services, in response to relative price shocks. In order for monetary policy to adequately respond to second-round effects, these effects need to be identified and quantified. Such identification depends on the definition of core inflation, the underlying trend in overall inflation, and the consequent measurement of this core inflation. This PhD dissertation contributes to the academic literature and policy discussion of second-round effects and underlying, or core, inflation in South Africa. First, the impact of second-round effects on inflation following supply shocks will be quantified using a Structural Bayesian vector autoregressive model, with sensible zero and sign restrictions. This identification relies on a conventional exclusion-based measure of core inflation – headline CPI less food and energy – that is often used in policy discussions and decisionmaking. The results of this model confirm the impact of wage-setters in South Africa, that changes in the prices of food, petrol and energy are accommodated and lead to strong secondround effects. Second, monetary policy in South Africa is forward-looking and requires forecasts of inflation to set policy. To ensure the best possible estimates of core inflation are available to the central bank, we look at a host of possible models that existing literature shows to have some success in forecasting, and that cover a wide variety of new techniques. These include models that take account of large datasets of information, that address possible breaks in the inflation series as monetary policy regimes change, that address the changing relationship between variables and inflation or the structure of the economy, and that provide mechanisms to look at the importance of volatility. The myriad of forecasting techniques reveal that accounting for changing relationships improve forecasts of core inflation, while exploiting more economic information does not necessarily produce better forecasts compared with smaller models. Last, it may be that a conventional definition of core inflation currently used by central banks – headline CPI less food, non-alcoholic beverages and energy, the exclusion-based measure most quoted by the South African Reserve Bank – is not the most appropriate, or theoretically consistent, to ensure best policy outcomes. To address this, a novel approach to the definition and calculation of core inflation will be followed using micro-price-level data. We study the underlying dynamics of 5;200;466 individual price quotes of goods to determine the frequency of price changes at a product level. This is used to construct a sticky-price goods inflation measure. Sticky-price goods inflation is more persistent, less volatile and correlates well with future goods inflation. The advantage of sticky-price inflation is that it grounds the concept of underlying inflation into the theoretical framework currently used by central banks to make policy decisions, and what is considered optimal policy by monetary theorists, making it an ideal core inflation candidate for the central bank.